Carnegie officials propose two-tier business privilege tax
By Megan Guza
Published: Wednesday, Jan. 8, 2014, 9:00 p.m.
Rebecca Sohn isn't worried that Carnegie's proposed business privilege tax increase will hurt her bottom line, but she does hope businesses will see the benefits of the tax.
“I think increasing the business tax without being more proactive with the benefits the borough provides to business owners would be a mistake,” said Sohn, who owns Black Lamb Consignments on East Main Street.
She said there are storefronts in the community that fall below borough code and hopes the money brought in from the tax will go toward enforcing borough standards and helping bring the storefronts up to code.
The borough is proposing a new two-tier system to the business privilege tax structure that includes an increase to what had been a $200-across-the-board tax. Businesses with fewer than 10 employees would be charged a $300 tax each year. Those with 10 or more would be charged $600.
Out of the nearly 340 businesses in borough, 229 have 10 or fewer employees. Sohn's is one of them.
In 2013, with the $200 flat rate, the borough brought in about $62,000 with around a 92 percent collection rate.
Bonita Farinelli, owner of Distinctively Different Décor on Chestnut Street, would fall into the first tier of the tax. She said the return on investment is more than enough.
“We get a long of bang for our buck here,” she said. “This is a growing town, and the current tax rate is more than reasonable. I don't think $300 is atrociously bad.”
She said she hopes some of the money is earmarked to continue the borough's efforts to promote business growth.
Council president and former finance committee chairman Pat Catena said the increase will be necessary to maintain public services.
“If the businesses in the community want to keep the same level of service they have for public safety, the department of public works – all general services — then yes, it is needed,” he said.
The two-tier system allows for more even cost-sharing.
“With larger businesses, there is a greater cost for services,” he said. “Larger businesses are utilizing more police, more road service — things to that effect.”
He said a mercantile tax — a business tax indexed to a business's gross receipts — would put the borough in less of a budget crunch that it is now.
State law, however, prohibits the borough from levying such a tax.
“Especially with larger developments coming in, if it's an indexed tax, that would provide a lot of revenue we just haven't seen since (the law) was enacted,” he said.
The 1988 Local Tax Reform Act enacted by the state prohibits municipalities from levying a tax indexed to a business's gross receipts. Municipalities with such taxes in place at the time the law went into effect were grandfathered in, meaning they could keep their indexed taxes. Municipalities without indexed taxes in place are prohibited from levying them.
Carnegie did not have a gross receipts tax in place in 1988, so must rely on a flat business tax rather than one indexed to gross receipts. But relying on a flat tax, borough solicitor Joe Lucas said, can cause problems.
“You have businesses with high gross receipts that are paying the same business privilege tax that a small, mom-and pop-business with a fraction of the revenue is paying,” he said. “If the borough raises the flat fee business privilege tax, it hurts the small businesses.”
Catena said he is not sure why Carnegie did not institute such a tax when it had the chance.
“We've been talking about this for two years, and for two years, we haven't been able to figure out why no action was taken in Carnegie,” he said.
He said it is an issue he thinks the borough should pursue.
“It's definitely something we need to discuss with state legislators,” he said.
In the meantime, the two-tier tax was proposed in hopes to gain more tax money without hurting the borough's small businesses.
“A small business would really struggle to pay $600,” Catena said. “To jump from where we presently are to $600, I believe would be just an unreasonable action.”
Farinelli said as long as Carnegie continues its business growth, she believes the tax increase is for the best.
“I have faith in our council, faith in our mayor and faith in the people of this town,” she said. “I don't think it's a bad thing.”
Megan Guza is a staff writer for Trib Total Media. She can be reached at 412-388-5810 or firstname.lastname@example.org.
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